Forex trading strategy #5 (5x5 Simple system)

Hi Ashraf,

it depends on how you approach it:

- if you use the simple straight forward rules as is, without adding any "ifs" or exceptions, then you'll go Short regardless the type of the candle.

- if you start looking at dojis, reversal patterns etc, and you'll definitely find some, then you'll be looking at a new trading system with new rules and conditions. It can improve your odds, so I would suggest trying it, you should use everything you know about the market, everything that can help lower your risks.

Best regards,
Edward

Nice strategy. I have a question: If the first candle to cross below 5MA is a doji, would you consider going short?. Also if the body of the signal candle is much bigger than the body of the previous candle, would you trade it given the conditions you mentioned are met?

Ashraf

tks a lot Edward for yr help,
MG

When close to 50, RSI can go back a forth for a while, you shouldn't worry as long as price stays above 5 SMA.
If price closes below 5 SMA - then of course you need to exit right away.

Best regards,
Edward

Dear Edward,
i took long eu on 18th may 2011, as rsi was just above 50.On the chart it looked like it is below 50 but clicking on the rsi value it showed 50.3234.so i took it as a buying rule.candle closed above 5 sma n made 10 pips higher so i went long.next day, rsi is 46.950 meaning dropped below 50 but price is still above 5sma. now, i am not sure it should be early exit from the trade and cutting my losses short or i should hold on to the trade as price is still on the right side of 5sma n wait for either my tp or sl to get hit?
tks a lot

Hi MG,

I think you can lower the requirement to 6 pips on hourly chart.

Best regards,
Edward

i am testing this method on hourly charts. do we need to keep 10 pips higher/lower criteria for the same or can lower it by 6pips etc,comsidering these will b ehourly charts. well, i will do my own testing with 6 n 10 pips n will post here.but what do u think Edward?
thanks for yr generosity and this excellent website.
MG

try using chopiness index suggested by manus few pages back,
helps to read all the pages!
MG

Hi,

if you have $1000 account and you lose $100, that's 10% risk. (While 5% risk would stop your trade with $50 loss).

With 2-3 consecutive losing trades it's a serious damage to any trading account. Consider the numbers:
$1000 initial balance - $300 loss = $700 left (sustained loss = 30%)
To restore the initial balance you'll need to make 42.8% profit with the remaining $700.

The fact that you haven't seen 2 consecutive losses during backtesting should not make you believe that live trading will repeat that scenario. Markets tend to "surprise" from time to time, where you can trade for months or even sometimes a year without major stresses, but then in one months the whole picture would change, bringing conditions that no strategy could sustain. Professional traders will also lose money during that period, but those traders who were caught off-guard will find it difficult to recover.

It's generally advised to take no more than 3-5% risk at once.

Best regards,
Edward

Hi Edward,

i wanted to start slowly in the trading buisness by starting with trading on weekly and daily charts (even though i already did backtesting and demoaccounts on short time frames), because i dont have that much time in the moment. I know about the risks of leveraged account and that u shouldnt invest more than 1% of your account in one trade. Does this rule also apply for trades on the weekly charts? I just backtested it for 2010 and the biggest loosing trade was far less than 200 Pips.

Lets assume you start of with 1000$ only for the weekly trading and a leverage of 100:1. If you risk 5% that would mean a loss of 100$ (in case of 200 pips). That should be far away from a margin call. And as I see it you shouldnt get more than 2 maybe 3 consecutive loosers on that big time frame. I never even had 2 consecutive loosers in my backtest. So i would assume that a risk level per trade between 5% and 10% should be rather safe.

Please give me your oppinion on my thoughts.

And thanks to your great site, its acutally my first but probably not the last post of mine.

If you start seeing some sideways activity (basically you'll feel it immediately as your account gets a few losing trades in a row with market clearly moving nowhere), the option is to get a help from a larger period Moving average: basically, you choose to add 50 SMA or even 20 EMA and, as long as the market stays in a range (this range you can highlight by drawing a channel where price retains), you stay on the side suggested by the longer period Moving average (e.g. if the price is above 50 SMA, you take only long trades, ideally after the range channel is broken; and if the price is below 50 SMA your bias is to be Short).

Best regards,
Edward

Hi Edward, this strategy did well on 14/20 trades (7 out of 10). that is awesome!

However, this strategy gets absolutely hammered during sideways trading. How do you tell when you are approaching a time of sideways trading? I was trying to couht the number of bars with RSI between 45 - 55 but that to me requires a holding period that's much too long.

thoughts? thank you.

That's wonderful!
It does work on smaller time frames, whichever method brings you profits - document it well and just follow the rules.

Happy trading!
Edward

Hi Edward, have you tried this with 1 hr? I am having some ridiculous success with it.

The screenshot from Tony: